Upsurge in Housing PMI Shows Signs of Recovery

EghtesadOnlinne: The Purchasing Managers' Index in the second month of the current fiscal year (April 20-May 20) settled at 60.55 from 18.75 in the preceding month (March 20-April 19), showing signs of recovery after plunging for two months in the aftermath of the coronavirus pandemic.

News ID: ۷۵۰۱۹۷

09 June 2020

Iran Chamber of Cooperatives has measured the PMI for the country’s real-estate and construction sectors, under the Farsi acronym “Shamekh”, for the second month of the current Iranian year (ended May 20).

The new report shows the overall PMI settled at 60.55 from 18.78 in the first Iranian month, indicating a 222.93% increase month-on-month, the Statistics and Economic Analysis Center of the Iran Chamber of Commerce, Industries, Mines and Agriculture announced.

As an indicator of economic health, PMI provides information about current business conditions to decision-makers, analysts and purchasing managers.

Raw material inventory, employment conditions, new orders, supplier deliveries and export/production conditions were among the criteria quizzed, yielding a final score of between 1 and 100.

If a business scores 50, it means that no change has been perceived compared to the previous month, while scores higher or lower than 50 indicate that the business is booming or stagnating respectively.

The housing PMI is based on five major survey fields: new orders, raw material inventory, production, supplier deliveries and employment.

The survey includes 12 questions about business conditions and any changes, whether it be improving, no changes or deteriorating.

It is measured through a monthly survey sent to senior executives of 100 companies active in the real-estate sector. It is based on five major survey areas: "New orders" with a coefficient of 30%, "Raw material inventory " (10%), "Production" (25%), "Supplier deliveries" (15%) and "Employment" (20%).

The "New orders" sub-index stood at 57.22 in the month ending May 20, indicating a 177.5% surge compared with the previous month’s reading of 20.62.

The "Supplier deliveries" sub-index, which measures how fast deliveries are made, increased from 25.62 in the month ending April 19 to 51.11 in the month ending May 20, indicating a 99.49% growth.

The "Raw materials (construction materials) inventory" sub-index climbed 110.84% from 21.87 in the month ending April 19 to 46.11 in the month ending May 20.

The "Employment" sub-index increased 21.24% from 34.37 in the first Iranian month to 41.67 in the second month.

To calculate housing PMI, seven secondary criteria were also surveyed by ICC, including "Raw materials purchase prices", which stood at 70 in the month ending April 19. The sub-index improved 19.84% to stand at 83.89 in the month ending May 20.

"Warehouse inventory" dropped 32.6% to 38.33 in the second Iranian month from 56.87 in the first fiscal month.

The "Exports" sub-index settled at 49.44 in the month ending May 20 from 39.37 in the month ending April 19, registering a 25.58% increase.

"Prices of products or services" surged 16.53% to stand at 65.55 in the month ending May 20 from 56.25 in the month ending April 19.

"Fuel consumption" soared 113.84% from 23.12 in the month ending April 19 to 49.44 last month.

"Sales" jumped 267.3% from 14.37 in the first fiscal month to 52.78 in the second month.

And, "Performance expectations for the following month" sub-index settled at 53.89 in the month ending May 20 from 63.75 in the month ending April 19, registering a 15.47% decline.

Coronavirus Impact

The coronavirus has stoked concerns about losing one’s savings as more people entered the housing market in the month ending May 20 to register an 809.9% rise in home deals compared with the preceding month.

Mehdi Soltan-Mohammadi, a housing expert, says, “People are turning to the housing market in order to protect their savings in the face of rising inflation. No one sees housing as a short-term consumer commodity. Even real consumers view home purchase as a long-term investment.”

Soltan-Mohammadi noted that in recent years, Iran’s population has grown and migration from villages to cities has increased tremendously.

“Policies need to be directed toward encouraging supply. However, interference in markets, including the housing market, which has the self-regulation function, is not advisable,” he said.

Echoing the same sentiments, Ali Abdolalizadeh, former housing minister, said, “There is no such thing as speculative practice in the housing market: 85% of homes built in Iran are traded by real consumers. A small fraction of people engages in house flipping [buying a house or property with the intent of selling it for a profit] and that’s only observable about luxurious homes.

Abdolalizadeh noted that price balance is more conspicuous in the housing market than in any other market.

“The rise in prices of home over five to 10 years old went harmoniously along with inflation peaks,” he was quoted as saying by the Persian-language daily Shahrvand.

A total of 11,310 homes were sold in the capital during the second month of the current fiscal year (April 20-May 20), registering an 809.9% rise compared with the preceding month. They saw a year-on-year decline of 6.7% compared with the 12,128 deals in the corresponding month of last year.

Data published by Central Bank of Iran on its website also indicate that the average price of each square meter of a residential property in Tehran stood at 169.72 million rials ($958) during the month under review, showing a surge of 33.9% over last year’s same month.

Home prices in the capital city increased by 11% compared to 152.95 million rials ($864) in the first month of the current year.

CBI Report in Detail

The CBI data also show that during the month ending May 20, newly-built residential properties up to five years old constituted the highest proportion of deals at 38.8% (or 4,391 deals), down by 2.2 percentage points compared with the same month of last year.

That lost share was added to homes six to 10 years old and those above 15 years. Homes with a lifespan of six to 10 years and 16 to 20 years accounted for 18.3% and 17.8% of total deals respectively.

The share of deals involving homes that were 11 to 15 years old also decreased from 12.6% of the total deals in last year’s same month to 12.5% this year. Homes above 20 years old posted a share of 12.6% of total deals, compared with 11.1% of the same month of last year.

The distribution of dealt properties shows that among Tehran's 22 districts, District 5 grabbed the highest share of total deals at 15.2%. It was followed by districts 2 and 4 with a respective share of 9.6% and 8.3%.

All-in-all, 10 districts (five, two, four, 10, 14, eight, seven, 15, one and three) grabbed the lion's share of the deals at 72.8% with the remaining 12 districts holding a 27.2% share.

Among Tehran's 22 districts, District 1 registered the highest average home price of 339 million rials ($1,915) per square meter. District 18 offered the capital city's cheapest homes with an average per-square meter price of 78.5 million rials ($443). The aforesaid numbers show a respective increase of 30.3% and 32.8% YOY.

Residential units with an average price range of 120 million rials ($678) to 135 million rials ($762) per square meter were the most popular in Tehran during the Iranian month under review, as it grabbed an 8.8% share of all deals. They were followed by units priced at 90 million rials ($508) to 105 million rials ($593) per square meter with a share of 8.6%.

From the total number of deals, 56.9% belonged to homes cheaper than the average per-square meter price of the city (i.e. 169.72 million rials or $958).

Residential units with a floor area of 50-60 square meters registered the highest number of sales with a 15% share of total deals.

Units with an area of 60-70 square meters and 70-80 square meters came second and third with shares of 14.2% and 11.3% respectively. Units with an area of less than 80 square meters had a 53.8% share of total deals.

CBI data further show Tehran’s homes worth between 4.5 billion rials ($25,423) and 6 billion rials ($33,898) were the most popular with a 10.6% share of total deals. These were followed by homes with a price tag of between 6 billion rials and 7.5 billion rials ($42,372) with a share of 10% of total deals.

Collectively, homes valued under 12 billion rials ($67,796) had a 51.9% share of total home deals in Tehran during the second month of the current year.

During the two months of the current Iranian year that started on March 20, the number of home deals finalized in Tehran totaled 12,553, which shows a 19.3% decline year-on-year.

In the same period, the average price of each square meter of a home in the capital stood at 161.34 million rials ($911), signaling a YOY surge of 34.8% compared with the two months of last year.

The central regulator also reports changes to tenancy prices in the capital city and across urban areas.

According to CBI, the price of rented residential units in Tehran and across urban areas increased by 28.5% and 31.3% respectively during the second month of the current year compared with the similar month of last year.